According to Ireland’s commentary, only Obama has a real plan. He would increase penalties for fraudulent lending, create a foreclosure-prevention fund, create a standardized scoring system for rating borrowers’ obligations, and more. (Although Obama does not mention it, I hope he would also earmark funding to prosecute the frauds, who are pretty much going unpunished.)

Ireland says Clinton wants to offer shelter to the mortgage servicers who helped create the problem, while McCain’s “proposal” is basically to do nothing.

doesn’t this seem like the whole race, writ large?
Obama: well-thought-out plan
Clinton: plan, yeah, okay, not quite what is needed
McCain: 4 more years with the rudder flopping back and forth, but CEOs can gold-plate their toilet seats!

Sounds like he would create a death by suffocation prevention fund. Nobody wants it to happen, but it’s going to, at some point. If a lot of foreclosures are happening, it seems to me we should look at the causes leading up to the foreclosures, not the process of foreclosure itself. (foreclosure foreclosure foreclosure)

To be more accurate, not a single one of the plans would actually address the current foreclosure “crisis.” People entering foreclosure are not doing so just because they can’t afford their increased mortgage, they are doing so (in general) because they could *barely* afford it in the first place AND can not afford all the other cost increases in their lives. So the claims by Obama et all are a load of BS.

Ron Paul is the only one who has the real answer. No Bail Outs for poor banks from the Federal Reserve! Let the market decide how to deal with these issues and consumers will choose who they get their mortgages from based on the FREE OPEN UNREGULATED MARKET!

@gamin: He’s not stating everything is fine, he’s stating that people are, for the most part, a situation of their own doing.

For a moment, lets say that 50% of all the subprime loans were fraudulent and the lenders tricked the borrowers. But that still means 50% of the people borrowed too much and did this to themselves. Why should we bail them those people out?

And if anyone thinks the “fraud” rate is anything close to 50% (I bet overall its closer to 2 or 3%), leave the discussion now and tighten your tinfoil cap.

@Lucky225: Absolutely! All this unnecessary ‘regulation’ the Administration’s been pushing down all of our throats for 8 years, what with his doing something about the problem every time you turn around… I tell you. If only the government had done less…

@Me: Still, it’s better to make sure the bills are paid. Most people who think we can create some kind of 1950s paradise on Earth with spending cuts don’t realize that the only really big pot of money that might get us there without hurting a bunch of people resides in that five-sided building in northern Virginia.

It’s like this: Defense budget in Clinton’s second term – under $300B. Defense budget in Bush’s second term, roughly twice that, and that’s not counting the money we’re wasting in Iraq. If the dead troops don’t move you, the sheer scale of the waste and fraud associated with the so-called Global War On Terror ought to really piss you off.

the real problem is that with all these people being foreclosed on their going into apartments and rental homes.

and due to this high demand rental’s are going up a lot.

address that issue, because now not only is it harder to buy a house, which denies people the right to property which is part of the issues this country had in the beginning. but it also makes it harder for people to even live in various areas making them for the rich only.

@Steaming Pile: The only problem with your argument is that if you went through the federal budget, sure that’s the biggest item. But that is also specifically mentioned in the Constitution. Social Security, Government Health Care, and Endowment for the Arts are not listed, among many, many others. But you wouldn’t mind having those, would you?

@Skankingmike: Doesnâ€™t raising rental prices actually drive the economy even further into the toilet and further upset already frustrated consumers? If demand is high, then high rental prices are not only unnecessary, theyâ€™re dangerously greedy.

Maybe I’m not paying close enough attention to this issue and I’m missing something – but I’m tired of hearing about bailing out people who bought a house they couldn’t afford.

We live in a very modest home, but it’s one we could afford. Why should people who bought a house beyond their means get bailed out? Life is about consequences. I’ve known people who have filed bankruptcy several times in the past because they kept living beyond their means, and they were able to erase that debt while keeping the goods. This sounds like the same kind of thing.

@Tux the Penguin: I think what is covered in the Constitution is to provide for the common defense. Umm… Saddam is history, time to get the f*ck out of Iraq. I’ll give you that Iraq *may* have posed a threat to our nation, but I don’t think we are in any danger of being invaded anytime soon by anyone. We are already *owned* by many other countries through debt. There’s no need to take us over via warfare when they already have done so financially.

Now all we are doing is blowing sh*t up and getting more people pissed off at us. Re-direct some of those billions of dollars to strengthen our borders (to defend against terrorism), improve actual HOMELAND security, develop some type of renewable energy sources, and we won’t have to worry about what is going on overseas. Time to batten down the hatches and look out for ourselves, since no one is going to ride to our rescue.

@Tux the Penguin: Actually, sub-prime loas (where the current credit crisis STARTED) went from 2% of all mortgages in/around 2000 to 20% of mortgages in 2006/2007 (basically they increased 10x over the course of 5 or 6 years). Of those 20% of sub-prime loans, approximately 20% are currently in default with another 20%-40% (depending on which estimates you believe) heading towards default. Doing the math, that’s roughly between 4%-12% of total mortgages either IN or heading for default. This does not include traditional (non-sub-prime) mortgages, which, if you understand why/how the sub-prime mess was created you’ll understand that the damage won’t be contained to the sub-primes only.

In brief, “letting things sort themselves out” while it sounds nice, quaint and very “free market” isn’t a practical solution for the folks who didn’t lie on their loan applications or didn’t over-buy the house/payment? Why not? Well, at the default rates we’re talking about housing prices are cratering (i.e., if you’re one of the “responsible folks” I really hope you don’t need to move or otherwise sell your house for the next three years) and credit facilities have literally EVAPORATED (without the packaging and re-selling of MBS banks have no outlet for generated paper and therefore have less — read, more appropriate — appetite for risk, in some cases, retracting past the point of prudence and to the point of “zero bad loans”) resulting in even moderate to good borrowers not being able to find credit, which further craters home prices (even if someone wants to buy, they can’t get a loan) and the cycle repeats. Add to that a cyclical over-supply of houses (driven by the easy credit, inflated housing prices boom cycle) and you have an extended period of housing problems that is affecting everyone in the system, not just the irresponsible ones. And that, in a nutshell is why “letting things sort themselves out” is an exceptionally poor “strategy” (if it can even be called that).

@kaycee: Maybe I’m not paying close enough attention to this issue and I’m missing something – but I’m tired of hearing about bailing out people who bought a house they couldn’t afford.

These flailing overspenders, unfortunately, end up causing chain reactions and dragging down others with them. On paper and idealism, the sentiment makes sense, but in reality, without assistance, you end up with national economic byproducts and local neighborhood degradation that ends up affecting innocent people.

@AstroPig7: Rent control is not an answer, unless you want to halt rental units being built and all new ones becoming “luxury” units at an even higher price. Rent control has failed miserably everywhere it’s been tried.

Higher rental prices spur demand for new rental units, which then lower the price as there is more competition.

Think of it like the gas “crisis” currently going on — the higher gas prices go, the more inclined people are to invest in alternative fuel research. Yeah, it sucks paying $4/gal for gas now, but it will lead to getting rid of our oil dependency that much sooner.

@Lucky225: A de-regulated banking and securities industry was a huge factor in the great depression. Remember, when a bank loans money it’s not the bank’s money. It is the money of their depositors/investors. Lots of people lost every cent they had when their bank foolishly loaned out all their money to some slick-talking con artist on a risky venture that no regulated bank today would give a second look at. Same thing is happening here although there’s a safety net this time.

Banks love high risk loans because it’s an excuse for them to charge higher interest rates which increases their profit margin. Low risk loans are a safe bet, but unfortunately those borrowers demand lower interest rates.

@FightOnTrojans: “provide for a common defense” can be interpreted in many ways, just like “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof” or “the right of the people to keep and bear arms, shall not be infringed” are differently viewed.

But I’ll even go a step further and compromise with you: lets draw out every soldier stationed overseas and put them on our borders. I’d MUCH rather close the borders than have our troops in Iraq (assuming that us leaving wouldn’t cause a tremendous loss of life).

@Hodo: First, you’re using the data incorrectly. The percentages you’re using is of all mortgages in that year, i.e. new mortgages. Still, I believe subprime mortgages are roughly 3-6% of all morgages, so our ranges intersect.

Your logic that subprime mortgage problems will roll over into traditional mortgages is flawed logic: if my neighbor is defaulting on his credit cards, that doesn’t make me more likely to do so on my own cards. If he does the same on his mortgage, I’m unaffected. (Property values might drop, but that’s a whole different animal only affecting speculators and those wanting to sell).

As for your cycle, you’ve got an overly pessimistic view – you can still find lending, but it will be tighter than before. Even still, last I read FHA loans were as high as 97% value of the house. So for a 400,000 house I need to save only $12,000? Wow. Even better, FHA is backed by the government – and if they go under, we’ve got bigger problems to deal with than home values and houses themselves.

If you want to “fix” this once and for all, don’t encourage people to “spend” but rather to “save”. Anyone with any economic background remembers “tax what you don’t want people to do, don’t tax what you want them to do.” Well, right now we tax savings at a potentially higher rate than spending: if I earn $100 on my savings account, I might end up paying $30!

No bailouts for struggling homeowners. Can’t afford it? Sell to someone who can. Can’t sell it for the price you want. Lower it till someone will buy it. Someone like Jane Renter. Joe Renter doesn’t want to take out a risky loan to buy a house at what you bought it at. Jane renter wants to pay less.

Why not give money to those who want to buy a home rather than those can’t sell it or can’t afford it? Than again why artificially inflate the price of housing with Jane & Joe Renter’s tax dollars in the first place?

@Lucky225: Well said! I’m not huge on Ron Paul, but the market will fix this. The bad lenders are feeling the pain right now. IF we don’t bail them out, then they will learn a valuable lesson. Also their costs are way up, so they will be unable to compete w/ some of the other lenders who can offer the lower rates.

Question: do you know what the mortgage churn rate is? Or asked differently, what is the “average life” of a mortgage loan? According to FreddieMac ( [www.freddiemac.com] ) the median age of a mortgage was 3.4 years. Now, descriptive statistics being what they are, without knowing the standard deviation of the distribution, it’s hard to say exactly how many loans were churning and how many were staying intact. But a 3.4 year median (basically implies a 2003 origination date which makes sense given what we know about the creation of MBS) would make it not too hard to believe that the majority of currently outstanding mortgages (and when I say majority, I mean 51%+, not necessarily 80%) were originated in the 2001-2007 time frame. I might end up being wrong on that one, but I doubt it. So, sub-primes going from 4% of all originated loans to 20% of all originated loans doesn’t equate to 3%-6% of all loans. Why? Well, a funny thing happens when credit gets loose . . . it accelerates, meaning that sub-primes may have been 4% of 1 million applications in 2001 and 20% of 20 million applications in 2006. I don’t have the data handy or quotable (but it happens to be part of my job to stay at least partially if not imperfectly informed about what is happening in this sector) but applications, loans, and dollars did indeed accelerate in that aforementioned time period, so the average of sub-primes needs to be weighted by the increase in loan application pool (i.e., more apps as the % of sub-primes went up). So while a flat 20% of total mortgages outstanding isn’t correct, as you pointed out, it’s likely not 3%-6% of all outstanding, either. In any case, rather than getting into a pissing contest about who’s number is correct, even at the 3%-6% range you’re asserting, when you consider how prices are determined in an open market, a 3%-6% swing in supply (especially when supply cannot be curtailed or shut off quickly) is a HUGE number.

In any case, you explanation of why the sub-prime market won’t affect traditional mortgage default rates is somewhat simplistic in it’s “bottoms up” approach. Why? Well, you’re assuming a static case: person/family buys a house, gets a 30 year mortgage and stays there until the pay off their loan and die. This scenario almost never, and I do mean almost never, plays out. Even going back to more reasonable times (i.e., 1999) the FreddieMac data shows an average mortgage life of between 5-6 years. Ever wonder why the 3/27, 5/25, and 7/23 balloon mortgages existed? Because people tend not to stay in a house for very long (7 years is average) due to things like: growth in family size, moving for a job change, or increased income or desire for a nicer home. Bottom line: this “trade up”, “trade out”, or “move on” behavior is typical of the housing market. Your assertion seems to be that people with average credit, average income and average situations who don’t lie on their loan applications should be fine. Unfortunately for them, your assertion is somewhat disconnected from the way the mortgages are originated, funded, packaged and sold. That is where the REAL damage has been done in this credit meltdown. Entire CLASSES of assets (bundles of mortgages packaged together, rated by Moody’s, and sold as financial instruments) have evaporated since July of 2007. These vehicles won’t be coming back, the brokers who originated them won’t have the credibility they once had, the ratings agencies that rated teh various tranches of these packaged loans won’t be trusted for some time (if ever) in this market space, and many investors (mostly foreign banks) won’t ever trust this asset class again. Why does that matter? Because without the liquidity this mechanism provided, there won’t be a home for originated paper because most banks and financial institutions don’t want to hold (own) mortgage paper over time.

Its an incredibly complex financial eco-system out there that doesn’t lend itself to being understood quickly — which, ironically is one reason that the credit crisis happened . . . people (investors and investment banks) didn’t have a good grasp on what they were buying.

I could go on about this topic for quite some time, but I do actually have to get some work done today and I fear that I’m completely boring the crap out of people.

@JimiSlew: That works until you want to sell your house and you pull up the comps from the last 9 months and five people (on your 10 house street) were “irresponsible” and had to sell their homes in a fire sale . . . and you find out that as a result, your house value dropped by 20%. Then the whole “no bailouts” method doesn’t seem so hot. What is it they say: when your neighbor loses his job, it’s a recession, when you lose yours, it’s a depression.

@petrarch1608: I’m sorry, what? I’m not the asshole who raised tens of millions of dollars from credible rubes only to manage LaRouche numbers in the polls. If Ron Paul were as effective a legislator as he is an aider/abettor of white supremacist goofballs, then maybe he would’ve done something in the primaries.

@elijah_dukes_mayonnaise: Much to your point, is Ron Paul even in the news anymore or even considered a viable candidate? Granted the bulk of the media’s focus has been on the Democratic primaries as of late, but as far as I can tell he’s off the radar. I haven’t even seen people hanging banners for him off the overpass on the interstate.

None of the above will work. But hey, as long as we are using taxpayer money to bail out Wall St Investment Banks now – why not throw a few dollars to homeowners who were criminally frauded by some of those Mortgage brokers/lenders. Processing a mortgage with no proof of income or “fudging” numbers in that Zippy software sounds like criminal behavior.

Not a 100-years-in-Iraq McCain fan here – and didn’t he help Bail out his best bud Charles Keating and the Lincoln Savings scandal. Yeah that sounds like more of the same current crap going on now – must help those poor Bankers and no one else.

@FLEB: I’m with Kaycee on this one. These people need to be made to take their lumps with the hopes that some of them will learn their lessons and not repeat it again in another 10-15 years. Bailing out the irresponsible crowd will just result in us facing the same problems again in the future because too many will have it in the back of their head that the government will rush to their aid for buying $500k home on a $100k salary. That’s what my wife and I make together, and I couldn’t imagine having more than about another $200-300 a month in house payment.

At least this current “crisis” has abated the pressure the government put on banks to make loans to people with crummy credit, no down payment and/or to loan them money based on what the payment would be on a 3/1 ARM.

What is driving most of the fire-sales around here are the idiots who used their “equity” to take vacations and buy cars and had the loans called in because their imaginary equity evaporated. So now they’re selling for whatever it takes to pay off the loans, which is significantly less than what the normal home values would be in this area. So responsible folks such as myself are finding it about next to impossible to sell at a fair price because of these morons. With the exception of a couple of parts of town, we haven’t had the issues with sub-prime loans experienced in some other parts of the country.

Economically speaking, it gets very scary when you realize that without mortgage equity withdrawal (MEW) spending since 2001 that US GDP would have been negative for two full years and flat and under 1% for 3 years. Basically, without the ‘cheap and easy credit’ that have existed for the last 5-6 years, the US would have been in a recession.

As others have mentioned, this strict “no bailout” rule has impacts well beyond those who bought more than they could afford or banks that packaged this crap for others to buy. The problem is that we seem to be bailing out the banks, but not the consumers. Sorry, the banks are just as much to blame for this. Stated income, interest only, huge APR’s, etc. There’s absolutely no way they can say with a straigh face, “we didn’t know this could happen.” They knew, but they also knew they’d get bailed out or thrown a lifeline of some sort because failing banks would create a economic disaster. So they engaged in risky lending knowing that the downside would be minimized by the taxpayers. So, my view is that if you bailed out the idiot banks, you should offer some assistance to the idiot lenders. But, it should not make them whole, there needs to be some disincentive for both of them to do this again.

@Hodo: “I could go on about this topic for quite some time, but I do actually have to get some work done today and I fear that I’m completely boring the crap out of people.”
I thought it was some kind of awesome, for what it’s worth. Very educational! :D

I’m not sure the popular rhetoric that the government is bailing out Investment Banks is anything more than that . . . rhetoric. Take Bear Stearns, for example. They’re the domino that started this cascade (they’re not uniquely culpable, they just happened to be first). Do you think many (if any) of the people who worked at Bear Stearns are going to make any money upon being acquired by JPMorgan? In fact, I’d just kinda’ throw out there that most of the Bear Stearns staff will lose their jobs, any employees heavily invested in their 401k in Bear Stearns shares (as stupid as this sounds in the aftermath of Enron, employees are typically still waaaay over-weighted in their employer) are going to see their nest eggs erode to almost nothing as the cherry on top of the sundae of losing their job, and virtually nobody connected with the leadership of Bear Stearns is likely going to escape from this fiasco with their reputation intact (which doesn’t sound like much of a punishment, but a lot of money gets made on the street via perception and reputation . . . having a bad one can be fatal to one’s prospects). Banks that offer these bailouts of other firms (with a nudge from the Federal Gov’t . . . to the tune of “you can either buy them out or we can start to kick the tires of your bank.”) will have access to Gov’t funds to provide liquidity (and essentially help them remain solvent after they absorb large negative equity investments), but it will take years to gradually write those bad instruments down/off, which is just a nice way of saying “poor long term earnings performance”. So, I don’t see how the above-referenced rhetoric holds up (so far) to analysis, I could be missing the point though.

@Hodo: Perhaps the Bear bailout isn’t a “get out of jail, free” card. But don’t you think all of the interested stakeholders (especially upper management) are going to end up better off than they would have otherwise?

I have two big problems with these corporate security nets. First, they’re asymmetric and prone to awful incentives. Large corporations in key industries can reasonably rely on government bailouts to rescue them. Therefore, the public basically underwrites the risk of their business decisions — without demanding to participate commensurately in the profits. Given a free insurance policy, it should be no surprise that these organizations behave as aggresively as they do.

Second, these kinds of interventions strike a fairness nerve. Our economic system already places a disproportionate amount of risk upon individuals; it seems offensive to stack the deck even further by bailing out large corporations while letting individuals languish in their own situations. (This, of course, is in *addition* to all of the other special perks and privileges that corporate America receives.)

I agree with McCain’s. Basically bad things are done on many levels. By home buyers buying more than they can afford without educating themselves first, and lenders who passed off the risk to investors, by investors who didn’t educate themselves of the risk of morgage backed securities.

They just need to take their losses and get one with their lives (or commit suicide). The more we involve the government to bail out anyone, the more future prospective home owners get punished.

For each person that gets bailed out of the sub prime for their bad decisions, a prospective buyer has to pay more for houses that probably should of been forclosed upon.

I’m really rather tired of news sources describing Obama and Hillary’s “plans,” which are really more like one or two sentence blurbs, and then essentially saying, “oh yeah, and McCain, but his sucks anyway why are you even asking?”

They’re all terrible, all three of them, in the regard that we essentially have NO IDEA what they actually plan to do when they get into office. It’s terrifying, quite frankly. The first presidential election in which I can vote and the media coverage is about on par with a rerun of Entertainment Tonight.

Actually, come to think of it, “do nothing” is what I wish the government would do more of. It’s cheap and it’s easy to implement. The government obviously has not even the most basic understanding of what is going on, let alone how to fix it, and the government seems to be really good at screwing things up anyway. I’m not sure I want them sticking their hand in the pot.

Funny, isn’t a war what you usually use to get the economy out of a slump? Well, we sure played that card a few turns too soon…

Basically, we could zero out the budget for Agriculture, Commerce, Education, Energy, Health and Human Services, Housing and Urban Development, Interior, Labor, Transportation, and NSF, and still be running a deficit.

Taxes need to go up AND spending needs to go down. Hell, interest on the debt is the 4th largest government program.

@AlexDitto: Obama’s a published author — and one of his books is principally about his politics. (Info on specific policy positions is available on his web site — but The Audacity of Hope is effective at conveying overall political philosophy; I read it back when he was the extreme long shot, and have been an ardent supporter since).

As there have been several books written about Clinton (and her campaign no doubt has an extensive site), comparable information should be available there as well.

Instead of complaining about how the mainstream media only gives two-sentence sound bites, you might consider looking for more extensive sources; they’re certainly available.

Oh whatever… Clinton was the first (and only as far as I know) to suggest an Interest Freeze for Mortgages. Alot of this comes from nasty Loan Originators/Officers (My BF is a Loan Processor, I should know) continuely lying and defrauding their customers including hiding interest rate increases in 100+ page packages or just lying and saying an increase on their ARM would be nothing to worry about. This would help those victims. And YES, they should have read and understood the package, and YES the Government should have known (and have even more responsibility) but the blame lies on those who pushed Sales over Quality and thus lies squarely on the Loan Originators/Officers and the Management and CEOs that threatened to fire (and yes my BF got fired from Countrywide in 2003 for speaking up) Processors and Underwriters that didn’t play thier game.

So this is no shock to me… I predicted this in 2003 and expect it to get way worse and not limited to subprime at all. Poor Credit borrowers just default faster and obviously have less cash to try to hold on to a property when their interest rates go from 3 to 6 percent effectively doubling their payment. Interest Freeze would help temporarily solve this.

@KyleOrton: there in lies the problem, nobody can afford the condo’s to buy them up and rent them out. To buy them up would be 300-400 k the mortage is around 1200 or so then you want to make money so then add 100+ to that cost you then paying 1300 or more a month in rent for a 1 or 2 bedroom condo that you used to own.. not really something all that wonderful.

@modenastradale: Can’t really disagree with much you’ve written. The only thing I’d accentuate is that the issues you highlight are indeed systemic and not limited to this particular financial crisis. Whenever money and power are highly concentrated, you get very asymmetric administration of the law, IMHO.

@ARP: I actually do write a newsletter, but it is incredibly industry specific and I doubt it would interest you. One source I use a LOT for information and perspective is John Mauldin. He has a FANTASTIC newsletter, and I highly recommend it. You can sign up for it here: [www.2000wave.com]

While I realize that foreclosure sucks for many americans, it’s unfortunate that prices have been driven up as far as they have. After looking at [www.hudauctionwatch.com] I believe that foreclosures will actually be good for those of us trying to afford to buy a house.

@Skankingmike: There’s no solution, but the result is that people who made dumb decisions are having to live with them now. That’s not entirely a bad thing given the financial behavior of people in this country.

Translation:
Obama and Hillary want to make government bigger and have more fingers in more pockets so that people have less choice under the guise of “protecting the American people” so that you become even more dependent on the government so they have an excuse to make it even larger and more intrusive on your daily life.

The majority of the people in foreclosure over-borrowed and put themselves in this situation.

What next, the government is going to set regulations on how you can use your credit card?

Ban cigarettes, the government is protecting you.
Ban fatty foods, the government is protecting you.
Ban rare-cooked red meat, the government is protecting you.
Ban violence and sex from tv and videogames, the government is protecting you.
Ban thought and emotion, the government is protecting you.